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Socially Responsible Recovery

Socially Responsible Recovery

Is sustainable investing the path forward?

Before the global coronavirus pandemic, more than one out of every four dollars under professional management in the US was invested according to socially responsible investing (SRI) strategies. With economic recovery and social justice now at the forefront of the national consciousness, evidence suggests that the ongoing crisis hasn’t derailed SRI investing, either in terms of its popularity with investors or its relative investment returns—in fact, investors poured $15 billion into ESG ETFs in the first half of 2020.

Sustainable investing has many interesting implications for our recovering economy. According to the National Bureau of Economic Research (NBER), one of the strongest predictors of actively managed fund performance during the height of the economic collapse (February 20 to April 30) was the sustainability rating from Morningstar: The higher the sustainability rating, the stronger the fund performance under pressure.

Even so, some advisors still hesitate to take the leap in presenting SRI—also known as sustainable, impact, or ESG (environmental, social, and governance) investing—as an option for clients. But SRI may have a role to play in your practice.


Not just a flash in the pan

SRI is one of the fast-growing trends in the investment industry. According to the Forum for Sustainable and Responsible Investment Foundation (US SIF), total US-domiciled assets under management (AUM) held within investments that use SRI strategies grew by 38%—from $8.7 trillion to $12 trillion—between 2016 to 2018. The change from a generation ago is even more dramatic: Assets held in SRI investments have increased 18-fold since 1995, when they were just $639 billion—that’s a compound annual growth rate of 13.6%.

Nearly three out of four investors are at least moderately interested in SRI, according to Morningstar—and potentially receptive to incorporating it in their investment strategy.

This holds true across demographic categories: While women investors have a slightly stronger preference for SRI than their male counterparts, the difference is small and disappears when variables such as income, age, risk tolerance, and financial literacy are considered. Millennials and members of Generation X have roughly the same level of interest in SRI, and while Millennials have a slightly stronger preference than Baby Boomers, the statistical significance again disappears when accounting for sociodemographic variables.

Also, the SRI tent is bigger than many advisors may think. In addition to investments they believe will provide societal and environmental benefits, sustainably oriented investors may also seek out investments that promote positive employee and customer relationships, "enlightened" executive compensation plans, or shareholder rights.

In light of the racial justice movement of 2020, these considerations may continue to loom large in conversations around corporate responsibility, commitment to equality, and allyship. As the evolving global situation prompts clients to reevaluate their financial plans or consider money moves, ESG criteria may help advisors and their clients explore opportunities to align key values with financial goals.


Where to begin

Typically, the major screens for SRI money managers include climate change/carbon emissions, human rights (including racial justice), tobacco, conflict risk (terrorism or repressive regimes), transparency and anti-corruption, pollution/toxins, military/weapons, and alcohol. Clients may want to seek exposure to investments that align with the categories they care about most, or avoid investments that conflict with them.

For those concerned about the perceived trade-off between social benefits and investment performance, numerous studies have indicated that an SRI performance trade-off, if there ever was one, may no longer exist:


Responsible recovery

With so much at play in the current environment, sparking conversations with your clients around SRI criteria can offer opportunities to deepen your relationships, address any worries related to the news of the day, and glean valuable insights.

Advisors have an opportunity to use SRI to engage with clients, add value, and differentiate your firm. To build your knowledge base as you talk with clients about how their priorities may be shifting in the recovering economy, it might help to tap into resources such as the US SIF site at, which contains a wealth of SRI educational resources and updates.

Socially responsible investing presents a potent opportunity for advisors to grow their firms, yes—but even more importantly, it’s an area where advisors can engage with one of the most powerful trends in the industry as we chart a path forward.


Matthew Wilson is Managing Director and Head of E*TRADE Advisor Services.

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